Is ERISA preemption at risk of being preempted? 

The Employee Retirement Income Security Act (ERISA) preemption protections for employer-sponsored self-funded health plans have walked a tight rope for almost a half century. ERISA preemption prevents application of state insurance (or banking or securities) laws that “relate to” a self-funded plan. In recent years, however, the winds of change have made treading the tight rope of ERISA preemption an uncertain proposition.

It’s a complex issue. On the one hand, ERISA preemption helps multistate employers with self-funded health plans abide by a uniform set of rules, helping them to control costs, ease administration and maintain affordability. On the other hand, states often enact these laws with a similar intent of controlling costs and reaching as many of their residents as possible, particularly concerning prescription drugs.

Before examining today’s landscape, let’s briefly look at three recent judicial events:

• In 2020, the US Supreme Court (Rutledge v. Pharm. Care Mgmt. Ass’n, No. 18-540 (U.S. Dec. 10, 2020)) upheld an Arkansas law restricting activities by pharmacy benefit managers (PBMs). The Rutledge decision concluded that “ERISA does not pre-empt state rate regulations that merely increase costs or alter incentives for ERISA plans without forcing plans to adopt any particular scheme of substantive coverage.” Prior to the opinion, the US Department of Labor (DOL) and Solicitor General submitted a “friend of the court” brief that was consistent with the court’s holding.
• A year later, a similar ERISA preemption challenge was rejected by the 8th US Circuit Court of Appeals in upholding a North Dakota PBM law. The Wehbi decision echoed Rutledge, concluding that “none of the challenged provisions has an impermissible connection with ERISA plans.”
• Most recently, the ERISA Industry Committee petitioned the US Supreme Court to review a Seattle health coverage ordinance on ERISA preemption grounds. Again, DOL and the Solicitor General weighed in, arguing no preemption. (Note DOL consistency on this issue, despite a change in administrations.) Today, the Seattle law remains intact because the court declined to review the case in late 2022.

Fast forward to today. Another case will soon test the balance of the ERISA preemption tight rope: Pharm. Care Mgmt. Ass’n v. Mulready, pending before the 10th US Circuit Court of Appeals. Last year, a district court decision upheld Oklahoma’s Right to Pharmacy Choice Act. Once again, DOL and the Solicitor General have been asked to comment, this time by April 10. It will be interesting to see if the DOL continues or deviates from its recent position on ERISA preemption.

In addition, state legislatures are considering bills that would further challenge ERISA preemption. For example, two bills pending in Maryland (HB 357/SB 898) would eliminate the ERISA distinction between fully insured and self-funded plans for PBM laws. Other bills are silent on whether they apply to PBMs working on behalf of self-funded plans, apparently leaving that decision to state regulators. Should any of these bills become law, we certainly expect litigation to follow.

So what should an employer/plan sponsor do avoid a fall from the high wire?

• Make sure your key decision makers appreciate what is at stake. For background, see last year’s ERISA primer GRIST.
• Be aware of legislative efforts in your state (and on Capitol Hill) and take action when appropriate.
• Realize that state legislation – when enacted – may require benefit plan changes, particularly related to prescription drugs.